Right-Sizing in the Mega-Foundation World

At this year’s annual Grantmakers in Health Conference in New York, Steven Schroeder, who is stepping down after ten years as president of the Robert Wood Johnson Foundation, reflected on his experience there and lessons learned.

Schroeder’s presentation was thoughtful, if predictable. What was surprising was the reaction from a few members of the grantmaking community in the audience, and the buzz in the hallways afterwards. Apparently, RWJ engenders a certain amount of resentment, especially among smaller, less well-endowed foundations. They think RWJ is too big, too prescriptive and, in the process of trying to foster positive change in American health and health care, ends up perpetuating the status quo.

Now, some write this off as simple envy. It’s like the kid in high school who’s rich, good looking,
smart, has lots of friends and goes off to an Ivy League school. Naturally some people love to hate him.

But there’s more to it than just envy, and this gets to a potential paradox in the foundation business:
the more money you have, the less effective you might be.

How so? What could be better than distributing $400 million in grants per year and having a crackerjack
professional staff to help you do it for maximum impact and leverage?

The issue here is scale and scope, not intention, mission, talent or ideas. RWJ, like other
mega-foundations, has plenty of the latter. Their challenge is how to escape becoming a prisoner of
the elaborate machinations they have constructed to achieve their noble ends.

Once you get up to a certain size in the foundation world, the process of making grants tends to
dominate the ends of the work. The CEO can’t simply tell the trustees that she’s recommending funneling
$100 million through a group of nonprofits in mental health and letting them decide for themselves what
to do with the money. To be accountable for their charitable work, the foundation is compelled to develop
rules and project guidelines, reporting procedures, budget forms, evaluation studies, policies on
indirect costs – in short, an entire administrative structure to regulate and account for the
funds.

What the foundation intends by this is one thing, but what the nonprofit organization on the street
experiences as a result of it is often another. All the nonprofit sees is a prescribed structure in
which they have to fit in order to "partner" with the foundation. To the degree that the
structure inhibits their freedom to adapt to changing conditions at the local level, they begin to
resent the relationship.

In one sense, working with a mega-foundation like RWJ is like working with a mid-sized government
agency. The form of the encounter defines the eventual function. The model you use, how you write the
proposal, account for the funds and prepare the evaluation report spell "success" in the
agency’s eyes. Veterans of the philanthropic scene can point to numerous examples of beautifully
conceptualized, structured and administered program models that produce nothing of lasting consequence
except providing employment for the people who create and evaluate them.

This isn’t a criticism of RWJ per se, which is one of the better mega-foundations around. It’s an
observation about the imperatives of bureaucratic regulation and control, which take on a life of their
own when any enterprise reaches a certain level of size and "success." Similar examples can
be found in the business world, where the vast resources and organizational capabilities of successful
corporations today become their innovative disabilities tomorrow. It’s no different in the foundation
world.

Ironically, a foundation with limited financial resources can often be more effective than the giants
in the field. They are motivated to look for ways to achieve their mission with more than just money,
and this can lead to clarity of focus and strategy. The Kaiser Family Foundation is one example at the
national level; there are many such examples at the local level.

If the mega-foundations want to think outside the box, they might consider "right-sizing"
their operations, either through breaking endowment funds and staff into smaller, more autonomous units,
or creating organizational "pods" of entrepreneurial thinking, and even dissension.

This would entail major risks, of course, and despite rhetoric to the contrary, risk-taking is not
the dominant model among mega-foundations.

Feedback? Send it my way: Roger.Hughes@slhi.org.
*The Drift reflects the views of the author, and does not represent the official view of SLHI’s Board of Trustees and staff.